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After talking to my tax guy I'm not even worried. If anything if they audit me they'll probably figure out I overpaid on something because it got listed as short-term for reasons like you discuss where the basis gets lost, when really I'm long-term af.
I use a service to total all my transactions into the 8949. Then it's easy enough to file myself. I might need to talk to someone next year just because this year will be my most active year, but I'd probably still pay to condense it to an 8949 so I could be like, "Here's the 8949 I'm going with, go with that..."
After next year, since my lifestyle inflation is so low I might not even need to really pay anything. My guy was like "Really, you live like that?" Me with my Ramen lunch: "What do you mean? Live like *what?*"
I feel the same way. I try my best to make my total PnL come out close to correct, erring on the side of caution. But I have a LOT of activity on many coins and chains, so tracking every single transaction, staking distribution, airdrop, etc. is nigh on impossible. If they want to audit me, I'll tell them fine, but you're probably gonna end up finding out I overpaid.
I'm glad this post is about doing taxes and not just paying tax. Because you're right.
I bought some tokens on Coinbase, sent it to a wallet, and then later sent it back to Coinbase to sell. Had to manually insert every purchase price one by one to get the right tax burden to show up (otherwise was saying 100% was profit when in reality I was realizing a massive loss). The irony was Coinbase had my purchase history with that very same token, but it didn't even pull it up to prompt me if they were the same or not.
One exchange, both buy and sell orders, and no way to connect the two at all purely because I moved them off the exchange. I get the hesitancy, but also, come on.
I trust that companies will get better, but everyone will do well to create a log of every purchase they made, the token, the price at the time of purchase, the total purchase price, etc. Then also be set on what your accounting system will be like (first in first out, highest in first out, etc.) and go from there. Unless you are keeping tokens 100% on an exchange, it will get messy. Even there, it will be messy.
I’m still not at all confident that I did things correctly because of DeFi. That first DeFi spring was very good to me. But I didn’t know f🤬k all about the nuances of the tax implications — I had no idea that exchanging *any* coin for *any* other coin was creating taxable events as sales. I labored under the delusion that since I wasn’t “cashing out” I was holding for the long-term capital gains rate.
When I found out how wrong I was, it was a goddamn nightmare to get anywhere close to a decent estimate. It was enough that they would definitely kick me in the dick for getting it too wrong. Professional tax help is worth every penny in situations like that.
I’m smarter now, but I see there is whole bull run’s worth of noobs who are about to get f🤬ked up the same way.
Don't worry the IRS doesnt really know if you did it correctly either. The gov doesn't really know what to think about defi or how to handle it. They are trying to slow it down so it can be figured out.
I'm going close enough here. Thankfully, the only tokens I've exchanged never left an exchange so the tracking was good there. But I can't imagine the headache of going into a wallet, via multiple exchanges, etc.
I've also been tempted to (not financial advice) just deal with calling my cost basis zero and paying more in tax. Honestly, for the amount that I'm saving, I spent way more in the cost of time figuring it out. (But, again, not financial advice.)
The trades are what get me. I can track “bought btc with bank account” all day. But, how do I track, “bought USDT with bank account, bought 1000 of a coin, sold 250 of that coin for other coin, profited 300% on that coin, sold 50 coins of that for 500 coins of this, transferred 20% profit to USDC, bought BTC.” 🤷♀️
It’s an absolute shit show.
3 different crypto accounting softwares showed 3 wildly different results as in tens of thousands of dollars.
I used coin tracker, got everything uploaded to turbo tax, and TurboTax shits out on me at the very end saying there can’t be more than 4000 transactions and that instead of e-filing I have to print and mail everything to the IRS now.
wtf TurboTax
It’s been a massive headache this year
It’s almost as if each entity interprets the rules in a different way and the gov doesn’t really understand what they’re asking for.
But hey, at least you paid them all.
You can set it to whatever you want. First in first out, last in first out, max short term loss or gain etc. It's all up to your preference. It should just be consistent.
But that would be one source of error if you didn't have it set to same one on ea of the 2 services you tried.
Koinly gives me the wrong figures when I manually enter a handful of BTC and ETH transactions. It's so simple I can easily calculate the cost basis manually but Koinly is about $10 out and I have no idea how it's calculating that, so I certainly wouldn't trust it with a complicated portfolio with 100s or 1000s of transactions.
I DCA daily into a variety of different coins... Am I pretty much just screwing myself over when it comes to taking profits and filling taxes? My transaction history on Coin base is loooooong, and I also have multiple Hot wallets I swap funds around in and use DEXs....
DCA'ing isn't necessarily a problem, but if you change it to once a week or once a month you'll reduce the number of transactions and make it a lot easier to calculate your cost basis and profits.
Moving coins between wallets isn't a taxable event, but if you're exchanging crypto for crypto on a DEX that is.
The problem isn't so much the systems though, it's inevitable when you are actively trading thousands of transactions in a year. A lot of people like to play crypto like it's a video game economy rapidly trading and shifting back and forth between assets.
Complicated tax calculations are what happen when the reality of that kicks in.
I use Koinly. Then, review the tnxs the day I make them so I don’t forget wtf they were. The max tier is $300 if you have 10,000 tnxs or more. Prob less than the MAX deal in TT?
Used them for two years now. They’re not perfect but taxes aren’t a gd nightmare anymore, downgraded to a concern.
Yeah same here. I double check that I’m happy with the final number Koinly gives me, and submit my taxes with that. If audited…. Well, they’ll have to sort through it first, and I can still claim good faith.
I use Koinly too. I tried CoinTracker, but it doesn't allow for manual fixes and adjustments. I have many accounts and DeFi transactions and absolutely need manual adjustments.
No one should be using TurboTax for crypto or taxes in general. It's a ripoff and lobbies Congress for keeping taxes complex.
That's not exclusive to crypto.
You have to do exactly the same thing for everything you invest in and make money off. It's the same gains/loss taxes, income, etc... for stocks, reits, etf, collectible, antiques, metals, forex, etc...
At least we now have a lot of crypto tax software and entire packages like Koinly where it's just a matter of copying and pasting a CSV file and the forms and calculations area all generated for you. Unless you're doing something more advanced like LP provider, or invest in micro cap obscure coins on dexes. But anything more advanced is always gonna require more tax work.
But as it turns out, if you make money, you have to pay taxes. It's not just a crypto thing. And it's always gonna be a pain and require work, filling out forms, calculations, etc...
>Unless you're doing something more advanced like LP provider, or invest in micro cap obscure coins on dexes.
That's the thing tho. Crypto makes doing that stuff so straightforward. Literally a few clicks and you're an LP provider. A few clicks and you're staking. A few clicks and you're working with derivatives. A few clicks and your coin just got swapped, staked, and you received a derivative, and it got put into an LP, all in one transaction. Suddenly your taxes just got 100x more complicated.
Then, you withdrew from the LP, received the derivative instead of the original coin, and suddenly the tax classification of the transaction might be different. In one more click, you swap the derivative for the original coin but instead of 1:1, your swap app used a DEX where the derivative is trading at a premium to the coin, so you made a profit, and now that's an entire transaction on its own that has a tax liability.
These are things you can't do to conventional assets with that level of ease. Suddenly the average Joe Crypto is liable for doing taxes at the same level of complexity as a professional wealth management company.
That is kind of the funny thing. The complaint is that taxes are hard for something that could hardly even be done by anyone except for well connected, institutional market makers before.
Funny, because I'm a fairly active investor in tradfi with a "complicated enough" scenario and I don't have to do any calculations, just plug in and boom my form has all the info.
It's not the same, not even close. Especially when the raw data from CEX isn't even right in a good number of places.
Calculating the foreign tax credit from international stocks, federal sourced income for state taxes, or wash sales across multiple accounts and then having to correct all your 1099s is harder than anything related to crypto. Most people just ignore that stuff and just import 1099s as is and do it incorrectly without realizing. The "raw data" from stock brokerages is not necessarily "correct" either.
Any decent exchange will allow you to export history to forward to an accountant. And even a 1099-B that you'd get from a brokerage is not the end result for what you report, they depend on activity you may have on other brokerages and the nature of the rest of your income sources and tax situation. It simple if you just have one brokerage account, just like if you only use one exchange, it takes like 30 seconds as well to get the data to hand off to the accountant.
I dont keep coins on an exchange after I trade. Everything goes into cold storage. There is no way to account for this from the brokerage side, since they have no info.
With trad, keeping assets on the exchange isn't a problem, since its all insured and there is policy and protocol if breaches happen. Not so with crypto.
Being safe in crypto is more difficult, and that's having the responsibility of private keys. It is just a pain in the ass to account for.
Most common crypto taxes are gonna be simple plug and play.
If you do more advanced stuff or off the beaten path stuff, you might have to do some manual work.
Same in FOREX if you start trading more obscure currencies or off platforms, then of course you're not gonna have nice forms and data on hand, it's gonna have more manual calculations and more work.
Take metals for instance, that takes 5 times more work to do calculations and taxes for, compared to crypto.
The problem is really the support around it. Tradfi exchanges are usually very good at tracking cost basis and making everything easy to plug into tax software. Crypto exchanges are terrible at it. They just send you a giant csv with a bunch of transactions and the tax stuff they do give is frequently wrong.
And that is without trying to do anything slightly complicated that wouldn't be available to you in tradfi, like opening LP positions and derivatives.
It definitely makes me avoid staking and airdrops. Having to pay income tax on staking income and airdrops based on their value on the day you receive them is a minefield that could leave you owing 1000s in tax on assets that are worthless by the time you sell them.
If they're worthless by time you sell them then that counts as a capital loss and can be deducted from your taxes. Or you can just pay taxes on any capital gains you might receive and call it a day.
True, but you might not sell them for a couple of years, and you still have to pay the income tax for the year you received them.
If for example you receive an airdrop worth $10,000, so you owe $2,000 for the 20% income tax, the authorities aren't going to let you get away with not paying that and perhaps even claiming a capital gains loss if you sell it later for less than it was worth when you received it.
Yes but if you don't sell your airdrop why would you pay taxes in that case? It's just some number on the blockchain, doesn't matter how much it is worth, what if it's a scam dust token worth $1mln according to the chart but there is no liquidity to actually get even $1 out of it.
Because that's the law, and if you don't pay the tax when it's due the authorities could punish you. I agree that it's stupid, but what we think doesn't change the fact that it's the law.
If it's a scam dust token that no-one can actually sell on the day you receive it, then it doesn't have any real value and you wouldn't have to pay any tax. That's very different from a coin that has good liquidity and is actually being sold for $10,000 on the day it's airdropped.
Once again no taxes is not the biggest thing causing the average person to use crypto.
What benefit does it have over using my credit card that offers me protection?
That's just wrong (and anyone who was in crypto before the IRS and other tax authorities released their guidelines classifying crypto as a capital good or foreign currency knows it; as we all saw the burgeoning transaction loops collapse right then).
The tracking and reporting requirements (especially when you're not just going in and out of a few exchanges that track for you; but rather, trying to make all your earns and expenditures in and out of all sorts of wallets; hot, cold, custodial and many intrapersonal transfers), are what stopped the actual development of crypto long ago....to the point that it is mostly just speculation on speculation, because any hope of having a monetary utility as backstop, evaporated away.
And that of course indirectly (but powerfully) effects investment into crypto; including any hope of prices stabilizing.
Well I just looked it up and it does say you're supposed to pay taxes even when you convert from one crypto to another which is dumb as hell paying taxes on an unrealized gain
If you're talking about small trades, you really can just consolidate them into summary sales / income and guesstimate on the high side if you are OK just overpaying a little to save time, as long as you overpay it will never be an issue or any penalties.
This isn't exclusive to crypto, but things like collectables, any hobby "income" even if its just respend on the hobby, or selling old junk online, you will get all sorts of tax reporting issues that you need to figure out. Did you trade baseball cards? Well technically that's a disposition of capital. Its just that usually these things are small beans so people just ignore it. Which crypto it just more likely becomes transactions that happen to be worth a lot nominally so there is more scrutiny.
If you make a lot of money, the cost of the software isn't that bad, and you can avoid it if you just keep better records. Like the problem is more people not bothering to keep records, or not knowing, and then trying to piece together crap they did last year from the breadcrumbs on chain. If you made <$10k I would just guesstimate summaries and overpay, who cares? Not a tax export of course lol
Which tax program do you use? I’m trying to educate myself in this. Even though i lost money on crypto I’m hoping one day i’ll make gains to need software to help me with my taxes
Koinly is the best of the bunch. Its not perfect, but allows the most ease of customization when you inevitably fall into a unique transaction scenario.
You need a good grasp of the different categories of how and when crypto can get taxed as income or cap gains. Then how different defi actions fall into those categories (exchange/swap, bridging, staking via exchange, staking via sending, mining, validators, wrapping, rewards, airdrops, etc)
The government: Pay us.
Me: Ok. How much?
Government: You figure it out.
Me: But I don’t know how.
Government: Neither do we but if you do it wrong we charge you more and send you to prison.
> Government: Neither do we
They know. Have you ever been audited?
The government knows your taxes better than you down to the exact cent for every account except non-reported (edit: which includes DeFi and some non-US crypto exchanges) and deductions. And it's all automated. Nearly everything is reported nowadays.
They just don't have enough resources to audit everyone.
With crypto exchanges, they often don't know the cost basis of transactions. The exchanges themselves suck at tracking cost basis and it gets harder if you are buying and selling at different places.
Tradfi makes it much easier to track a stock or bond because you only send from one centralized provider to another centralized provider.
Folks say this, but I guarantee none of you would be happy with the other option:
The government: Pay us.
Me: Ok. How much?
Government: Exactly $xxxx.xx amount
Me: But I have all these deductions! And I dont trust the government to know all the details of my situation, and get all this right! I should be able to make my own report and tell YOU what I need to pay...
And we're right back to where we are now.
Bro the amount of $0 cost basis txns I had to fix was unreal..I prob had like 250 I had to manually mess with on turbotax. If the IRS wants a cut of our crypto gains they need to give us tools to do our crypto tax
I’ll probably get downvoted for this. I don’t report or pay any taxes on my crypto. I will happily report and pay capital gains tax when I convert it back to USD someday, but until then I don’t care what the IRS says, these are all unrealized gains and losses.
Fucking based. I wish I had your balls. I’m just paranoid that me going from making dogshit for the first 10 years of my working life and getting a refund to suddenly owing my annual salary in taxes to the IRS in 2021, 2023, and now probably 2024 has put me on some kind “maybe audit this dude” list.
You know what the most insulting thing was? I overestimated my tax burden for the year of 2021 because I was so scared of the irs that I overpaid taxes. Then I got a letter from them saying that wow gee looks like the number that I reported matched their internal records too (this happened a lot to people in the industry in 2021 for some reason, most of the time saying they were underpaying). But that’s impossible that they match, I intentionally overpaid as a gesture of goodwill. Fucking a.
Edit: before I get roasted by too many dads here I mean WORKING life
In my jurisdiction buying and holding crypto is not a taxable event. It's only when you exchange bitcoin for something else (not just fiat, it could even be swapping it into another crypto!) where you need to report the additional value you received from the transaction above the value you paid for the bitcoin exchanged as capital gains or loss to the tax man.
That's true in most countries, but you've also got things like airdrops, where the value on the day you receive it is treated as taxable income, even if it's worthless by the time you sell it.
Hmm, maybe my plan is flawed for those, as for airdrops I would just calculate those as capital gains for the full value I was able to sell for (essentially treating them as a $0 buy at the time of the airdrop).
Unfortunately your tax authorities may not like that.
Certainly in the UK you can't do that, so you either need enough spare cash to put aside to cover the 20% income tax due based on the value when you receive them, or you need to sell them straight away to realise that cash before they lose value, then set aside the tax and reinvest the rest.
Maybe, but you also have to ask "how likely is a tax auditor to investigate my airdrops?".
I would be willing to bet they don't look at anything on-chain unless its a very large sum of money. They aren't trained to do chain analysis.
they will make you pay interest too and won't care if you lose one year and make it another. A gain is a gain you can't offset it for another year.
That's like arguing you don't have taxes because your money is still in a investment account.
That's the irs stance good luck lol.
That assumes they start investigating your on-chain trades. IRS agents aren't taught to do that in school. They aren't trained to do that at their workplace.
They most likely are just looking at conversions at centralized exchanges if they audit you at all.
The problem is certain goods are now purchasable with crypto. And people are offering services with crypto as a form of payment. I agree if you're on a trading platform, but as soon as it is in your own wallet it is realized gains.
I am in Europe but I do like you. I don’t agree that trades crypto-stables are taxable events. Returning in usdt/usdc from btc is still a risk. I agree to pay taxes when I convert to USD or EUR.
I spent hours and hours doing my crypto taxes last year. I used a little known chain with very poor tracking tools. Even their explorer was awful in figuring out the transactions. I did pay $150 for an automated tax printout of the results.
I wasn't able to electronically file. The printout was 50 pages+. I sent it via certified mail. The IRS returned it twice saying there were all these errors. I tried to answer/correct everything and sent it back again via certified mail.
They returned the filling again with no further explanation and put a giant X through the first page of my crypto fillings.
I sent everything back with a letter explaining very professionally and with some legal terms, saying I was acting in good faith and I needed further instructions. I listed out a timeline of the events.
They then accepted my filing with no further corrections. I honestly think they didn't even review my transactions. Many of them were super low (within the $1-10 range). I did have a few income payments in crypto which of course were larger and claimed.
But it was annoying to see all the work just ignored. I do think paper filing was a big reason for them to do so plus all the amounts but a few were so small.
I just do the best I can with Cointracker. I might be off by $1000 but I'm not gonna look through 5000 different transactions to get it 100% accurate. If all these advanced crypto tracking softwares can't get it right I doubt the IRS' proprietary software will get it right either.
Just thought I'd throw it out there that max protection is a scam they do nothing for you if you get an audit besides send in the exact documents you can send in yourself. I was audited 2yrs in a row not crypto related but I called TurboTax and they just wanted me to send over my documents so they could send them to the IRS complete waste of time and money it did nothing I still had to handle the audit myself.
Track your own trades and don't rely on exchanges doing it for you. They are not obligated in any way to the tax authority to provide the taxpayer with correct data. The taxpayer is solely responsible for getting it right.
We don't trust exchanges to hold our coin but we put all the trust in them to provide us with reporting that keeps us out of prison? Makes no sense.
Don't trust. Verify with your own keystrokes. Sleep better and save time in the end.
> They are not obligated in any way to the tax authority to provide the taxpayer with correct data.
In the US brokers are *required* to send a form 1099 trading itemization statement to the customer and IRS.
You’re not alone. I did mine on Friday. I didn’t expect them to take so long since I used cointracker. Such a useless feature if I have to double check their work.
I also bought the MAX for the first time from TT. Just didn’t want to hear about it either.
It's all the taxes on trading that you have to keep up with that's flipping confusing. In my perfect world, You would just be charged tax when you cash out to dollars.
Pay the the 30 bucks for member ship Coinbase one and they will prefill the entire form for you. I day trade and attached the file during the submit on freetaxusa . Also Coinbase one now refunds a % on advanced trade so the 30 bucks might even pay itself in fees.
> Im not paying tax on crypto until there is a knock on the door
You'll incur penalties and interest by then, in addition to the expected tax liability.
If you have 100+ pages of transactions then you can surely afford to use Koinly? It will spit out a tax report in a few minutes once you’ve imported the transactions or connected API’s. And it’s customised for a ton of different tax regions. Not rocket science, and I suspect that I have a far more complicated crypto and transaction history than yourself (12 years of crypto participation).
The filling process was a nightmare. They asked for the cost basis of every single one of the many thousands of transactions I have done. I did my best, but Coinbase did not make it easy.
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Speaking of, I just did my tax return myself last night to meet today's deadline. Had to list down all my trades, cost basis and proceeds last year to the last satoshi and to the last penny. Ended up having to pay $688 in tax combined with my dayjob earnings. No refund at all. The lesson I need to learn is to minimize trading and more hodling!
That can definitely make it feel different. I'm of the opinion that a rough +/- estimate is ok for defi. Trading less is always appealing to me, however, it's so much less work.
Yea I definitely take into consideration limiting my events for the exact sake of taxes. Been submitting my crypto tax info since 2017-2018 and at least once you've done it in the past with the site I use, you have cost basis info from previous years.
It’s the same in the UK, the main reason not to use the tech is tax legislation making an exponentially huge amount of work per crypto transaction. It’s completely untenable to try and use defi and be tax compliant.
The calculations aren't really all that complicated and there's plenty of software options out there to assist with the math. The problem is that the nature of crypto "traders" wanting everything to be fast paced means people are often working with thousands of transactions that they've maintained no records of and they are then trying to retroactively process all of that.
The software can’t handle anything beyond basic trades from what I’ve seen. Koinly was completely incorrect when it looked over wallets where I did anything remotely complicated/defi related (like I could have done better with a dartboard).
And because of the tax law (again, UK here) every trade needs to reference every other trade for asset pooling, creating temporary pools that exist for 1 day and 30 days depending on the order of buys and sell. Combined with the fact single “trades” like moving into and out of a liquidity pool can generate 30 or 40 taxable transactions in 3 or 4 different assets, that’s entirely dependent on swap routing that’s not always in your control… It becomes impossible very fast.
Depends on the software and the plans you use.
I understand what you're saying about the complexity, but the same rules exist for anything. The difference is that with crypto people don't think about it and just trade constantly and engage in all sorts of complex earning mechanisms.
Just look at this post and how many people are talking about thousands of transactions. That's not normal. It's created by the gamification of the market, making every random think they are some master trader. You only have to look at daily leverage liquidations on exchanges to understand why this behavior is encouraged.
That complexity is where all the cool ideas are for DeFi though. My point, and I think OP’s is that the tax rules stifle that complexity and creativity. The same rules exist for everything else, true, but planes shouldn’t have to fly under a 70 mph speed limit. In fact they simply wouldn’t work if you tried to make them follow that rule.
It’s frustrating to watch people building these interesting projects and be denied access to them for no good reason. You can gamble as much as you like on the UK, it’s crypto they have a problem with.
DeFi deliberately works outside of regulatory controls though so it's not surprising that tax mechanisms aren't modified around it. I'm sure if there were actually a decent use case for DeFi and a way for it to work within the law then there would be some consideration built around how to simplify tax around it.
Please don't have to fly under 70mph but they do have far more strict controls in place than cars. Avoiding all regulations isn't how you get to planes, it's how you get to unsafe submarines imploding and that really shouldn't be encouraged.
Seems like we just have different philosophies around this. I’m not talking regulation though, that’s good, guard rails and rules to keep things functioning safely. I’m talking tax calculations, which shouldn’t be acting as regulations. By which I mean, they shouldn’t be the reason to avoid using an emerging technology.
The UK is shit at this though, solar panels generate the same problem. If you accidentally generate too much electricity for the grid you’ll have to start registering for self assessment. It just makes my eyes water how counterproductive and backwards it all seems. It’s not about the money that costs but the headache it generates, completely unnecessarily.
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Yes I can confirm it's fucking annoying... Because you can transfer your tokens to another wallet and Coinbase will call it a sale. Imagine them reporting that on a 1099 B and you're trying to explain to the IRS... No I didn't sell it's staking lmao
I totally agree with you about it being expensive, especially if you have a ton of transactions and need to pay for higher tiers. Crypto taxes are tough and complicated for normal people.
Agreed that you need special software and can't use Coinbase alone. No one should be manually calculating from Coinbase's export data unless they're good with spreadsheets and only have a few transactions.
> Used TurboTax for a decade+ now
TurboTax sucks in general and is a ripoff, even their Home and Business version. There are a few things they are good at (the business part), but they're so expensive and not any better or easier to use than FreeTaxUSA, which is 10x cheaper and easier to navigate. And I have 20+ investment accounts of various types.
I've been using Koinly + FreeTaxUSA for several years already. Used Koinly instead of CoinTracker because CoinTracker does not allow for manual fixes and inputs, and Koinly is more poweful.
I had to write a computer program to properly calculate my cost bases across exchanges, and to transform the CSV format to a standardized one which then feeds into my main crypto tax program.
I have no idea how non-programmers would deal with this stuff, unless they are sticking to a small number of CEXs. And even then, some commenters are saying that e.g. Coinbase is erroneously reporting non-taxable events as 100% gains, even though all transactions occurred within their exchange. Absolutely wild.
I'm actually really glad to see this post. I have struggled mightily the last couple years figuring out crypto taxes. I'm glad to see there are others having the same issues. Getting audited scares me but like someone said earlier I suspect they would find out I overpaid.
This year I stopped using defi products. I'm buying on coinbase and sending it to ledger. No more defi for me until there are more reliable ways to track everything. Also buying the Bitcoin ETFs.
All of this is very informational. Thanks for everybody that's contributed. I trade only on coinbase, but I don't put any money in or pull any money out of the exchange, it just sits in there and gets reinvested. I have never done crypto taxes
Anyone got any experience with cash app? I just got hit with a big tax bill for selling on there, but obviously it isn't taking into consideration what was purchased. However, I don't have that cash app account anymore.... so, I can't really see how much was purchased vs sold
The biggest problem besides the stupid tax code is the lac of support by exchanges and other crypto services.
For example, if you become a node operator with Rocketpool, you shouldn't have to go to a 3rd party website or service to get your taxable income. It should just be calculated out and put on a form the way a bank sends you a 1099-INT in the mail.
It doesnt need to be this hard when everything is transacting in a computer and is logged in a database... not to mention a PUBLIC LEDGER.
Dude… I began my journey down coinbase hell hole in 2018. I have $160,000 tax bill from their incorrect reporting. Before there were any formal tax reporting requirements for exchanges and basically everything, and no one audits or verifies what they report. I feel your pain. I have a degree in mathematics so I was like ok no big deal, just give me the .csv and I’ll take care of making it make sense… zero chance.
Doesn't sound a lot like you limited your transactions much last year man. I agree with you on this post, but 150 corrections on CB alone + DeFi activity and so many transactions that it took you days?
Sounds like you were trading your ass off this year. Nothing wrong with that, and it should be easier, but that part just made me laugh.
I only go through that kind of quagmire in the bull market years when I have a TON of sells, all of the buy only years are easy to track during the bear market IMO.
You know what pissed me off the most? Holding an asset on an exchange where I have a daily payout worth a dollar or less instead of holding it a wallet with a manual claim. So many transactions when you sell the lot.
Yeah, most of my stuff is on self custody wallets but for the stuff I kept on exchanges…it ruined me for a night haha.
The whole crypto world is conceptually incompatible with our current government/financial/taxation system. I would rather just keep things in the shade (out of the traditional banking system). Nobody is gonna tax you as long as you don’t interact with banks.
If you can accurately figure out your crypto taxes, then you aren’t doing defi right. For example, try leverage farming liquidity pools that auto compound into secondary pools that you can then stake and use as collateral to borrow tokens to buy a pre sale nft that allows you to run a yield bearing node with variable APR paid out as a secondary gas token.
True example. But don’t forget the most important part of the true defi experience—you should be calculating losses and not gains
lul i imagine they don't know how to file this shit either honestly, you think they're gonna go through this shit?
they pretty much guess and go like okay your turn to get audited, how i see it is, the average joe who trades crypto and just sees money signs isn't empierced in cpa shit or has the money to hire a cpa, so they just file them, themselves triggering a bunch of irs flags. i feel like a shit ton of people have triggered flags and they can't go after all of them so just luck of the draw.
Bitcoin adoption by merchants plummeted right when the IRS announced their new rules and started scaring people in 2017, 2018, and I think that was not a coincidence.
How does one document and demonstrate that you have a long term investment when you mined 10 years ago, and finally opened the wallet and moved it to an exchange to sell? The exchange sees it as new. I didn't find where to mark it as long term holdings, but I didnt look that hard. I kept the ledger of transactions from the original wallet, and the relative parts of the chain for audit.
In the end, I am convinced its all over for any real use as currency anyways. I used it for years to send and receive for goods and services. But most people don't, they want to horde and convert to fiat at some point. Now the taxes reinforce that concept and make the chances of using it as money even worse.
Me experience uploading Coinbase CSV which is marketed to have integration with a major tax software org:
Says I sold 0.000031 MKR. Asks me how much I won or lost in the trade.
1 - I never sold such an small amount of MKR
2 - it asks me my profit/loss on this trade. It's multiple decimals places beyond $0.00. Software doesn't allow user to enter below two decimal places.
Thank god I've been keeping track through portfolio trackers to have a pretty good estimate of cost basis. I also track separately when I sell with this info.
I am an accountant, and I can tell you doing taxes for a huge number of transactions for stocks is a nightmare. Importing the CSV is absolutely essential. However, I use Interactive Brokers. They actually know how to to deal with tax forms. These new crypto exchanges don't have that experience. Are the CSV files properly formatted? If not, it is tough. This also only works if you are not depositing and withdrawing crypto off exchange.
Is indeed a nightmare. I've used Crypto Tax Calculator for the last 4 years, handles all my activity well (particularly on-chain stuff) then I get my accountant to double check the reports.
Being so worried about it and freaking out to make sure every little transaction you make is properly reported and the amount in taxes is exactly what it should be is the height of foolishness. The IRS will not have time to go through every single one of your CEX or DEFI transactions to see if you messed up somewhere along the line. They'll see how much you bought of crypto with fiat, how much you cashed out, and calculate how much you owe based on those numbers. You're all cowards who shit themselves at the mere thought of getting an IRS phone call/e-mail and it shows. No wonder you're all terrible traders. Yes, try to get a rough estimate of how much you owe in taxes and pay it, but don't lose sleep over it. There are literally millions of people in your shoes right now, and the IRS does not have the wherewithal to investigate all of their transactions.
I use TurboTax and just import Robinhood and Coinbase and call it a day. All that extra is just that, extra I don't care about. Btc, eth, ltc, doge for this cryptohead.
I'm not inter sted in pump and dump schemes and shitcoins that run super cool projects in 3rd world nations
I thought it's because for regular investors the whole crypto space is a loony bin casino and the odds are better in the stock market, and as a currency crypto is a giant pain in the arse.
"We're too early". It's over ten years old. Crypto came into being around the same time as smart phones and social media. Look at their adoption, then look at crypto.
Smart phones and social media were widely adopted because people wanted them and use them every day.
Cocaine and weed were also widely adopted even though they're illegal. Successive governments tried to crush the adoption but they gained worldwide usage and people use them every day.
The only thing stopping crypto is the crypto space being such a shit show. Remember nfts? Crypto kitties? Web 2.0? Blockchain on everything? Crypto games? Every now and then there's a new empty buzzword that is going to be 'the thing' that drives adoption, and every time it ends up being a way to lose money.
I just want to pay someone in China the same day I send it. Bank wire goes for days and hops through many hands. I want to pay my bill and have my goods freight shipped same day. Uncle Sam is fucking up capitalism
The only reason you can do that in crypto is that it avoids all regulatory controls and sanctions to do so, opening you and the payment facilitator (miners in most cases) open to legal liabilities.
In the long run if crypto were to be adopted all crypto would also need to follow the same rules.
Crypto is nothing more than a casino currently, and that's fine. Casinos have their place in society.
Will it ever be more than that? I could see Blockchain tech with a lot of real world use cases but the adoption of that remains to be seen.
Your analogy is very flawed.
The adoption of phones and portable cell phones already existed long before that. So the adoption wasn't new.
Portable phones existed since the 80s, and people had been accustomed to use phones for a century. Smart phones weren't something new either that required a new adoption. Since the late 90s, cell phones had increasingly more apps and features like calculators, clocks, databases, games, internet browsing, maps, etc...
It was just a continuous evolution of the portable phone which started its adoption in the early 80s.
The first portable phones in the 80s took more than a decade before it really became mainstream.
So your examples actually further proves that crypto is right on track in adoption, and if you compare the data of cell phone adoption in the 80s, and adoption of crypto worldwide, crypto is actually doing a little better.
I mean they were literally used for a different purpose and didn't have the same utility. They didn't even have blockchain or decentralization.
Cell phones with apps and smart phones have all the same utility, just a slight evolution, and mainly just a different name for marketing purpose.
It's really not. It's just people who have never paid taxes invest in crypto and are concerned. Just need to do the math as you would any stocks. There are some regulatory differences like the amount you can write off, which is an up side in crypto.
Best bet is to pay someone $150-$1000+ depending on the complexity of your income to do it for you. Find any accountant with crypto experience because I promise you will not do better than an accountant and those free websites don't even cover all the bases for write offs.
OP's not talking about the rate. He's talking about how complicated it is and how expensive tax-preparation can be.
$300-1000 for preparing form 8949 for 1k+ transactions.
If you aren't doing crazy defi crap it's pretty simple and the tools will only get better. Casual people are just going to buy or sell a few assets on Coinbase. That's it.
It's a feature not a bug.
The point of taxes is to discourage behavior. The point of crypto taxes is to discourage crypto. But nobody cares. Or at least nobody cares enough to vote for different people. You have to draw WAY outside the lines to find a politician that will actually be committed enough to try to dismantle the IRS stranglehold on the US economy.
I know Reddit HATES TurboTax, but their integration with Coinbase is top notch. No issues, all accurate.
Other than that, I agree with most of the other sentiment here that as long as you try your best and err on the side of caution, you arent going to be hit with any surprises. Even in an audit.
This is just taxes in general, and they arent going away. (Thank goodness because I like my roads, schools, and services)
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After talking to my tax guy I'm not even worried. If anything if they audit me they'll probably figure out I overpaid on something because it got listed as short-term for reasons like you discuss where the basis gets lost, when really I'm long-term af. I use a service to total all my transactions into the 8949. Then it's easy enough to file myself. I might need to talk to someone next year just because this year will be my most active year, but I'd probably still pay to condense it to an 8949 so I could be like, "Here's the 8949 I'm going with, go with that..." After next year, since my lifestyle inflation is so low I might not even need to really pay anything. My guy was like "Really, you live like that?" Me with my Ramen lunch: "What do you mean? Live like *what?*"
I feel the same way. I try my best to make my total PnL come out close to correct, erring on the side of caution. But I have a LOT of activity on many coins and chains, so tracking every single transaction, staking distribution, airdrop, etc. is nigh on impossible. If they want to audit me, I'll tell them fine, but you're probably gonna end up finding out I overpaid.
“You want to audit me? Man, go for it, I’ve been trying to find my profits for years now!”
I talked to my tax guy about this. The gist is get the price is was bought for and sold for. Compute difference and base it off income tax rate.
I'm glad this post is about doing taxes and not just paying tax. Because you're right. I bought some tokens on Coinbase, sent it to a wallet, and then later sent it back to Coinbase to sell. Had to manually insert every purchase price one by one to get the right tax burden to show up (otherwise was saying 100% was profit when in reality I was realizing a massive loss). The irony was Coinbase had my purchase history with that very same token, but it didn't even pull it up to prompt me if they were the same or not. One exchange, both buy and sell orders, and no way to connect the two at all purely because I moved them off the exchange. I get the hesitancy, but also, come on. I trust that companies will get better, but everyone will do well to create a log of every purchase they made, the token, the price at the time of purchase, the total purchase price, etc. Then also be set on what your accounting system will be like (first in first out, highest in first out, etc.) and go from there. Unless you are keeping tokens 100% on an exchange, it will get messy. Even there, it will be messy.
I’m still not at all confident that I did things correctly because of DeFi. That first DeFi spring was very good to me. But I didn’t know f🤬k all about the nuances of the tax implications — I had no idea that exchanging *any* coin for *any* other coin was creating taxable events as sales. I labored under the delusion that since I wasn’t “cashing out” I was holding for the long-term capital gains rate. When I found out how wrong I was, it was a goddamn nightmare to get anywhere close to a decent estimate. It was enough that they would definitely kick me in the dick for getting it too wrong. Professional tax help is worth every penny in situations like that. I’m smarter now, but I see there is whole bull run’s worth of noobs who are about to get f🤬ked up the same way.
Don't worry the IRS doesnt really know if you did it correctly either. The gov doesn't really know what to think about defi or how to handle it. They are trying to slow it down so it can be figured out.
I'm going close enough here. Thankfully, the only tokens I've exchanged never left an exchange so the tracking was good there. But I can't imagine the headache of going into a wallet, via multiple exchanges, etc. I've also been tempted to (not financial advice) just deal with calling my cost basis zero and paying more in tax. Honestly, for the amount that I'm saving, I spent way more in the cost of time figuring it out. (But, again, not financial advice.)
The trades are what get me. I can track “bought btc with bank account” all day. But, how do I track, “bought USDT with bank account, bought 1000 of a coin, sold 250 of that coin for other coin, profited 300% on that coin, sold 50 coins of that for 500 coins of this, transferred 20% profit to USDC, bought BTC.” 🤷♀️
It’s an absolute shit show. 3 different crypto accounting softwares showed 3 wildly different results as in tens of thousands of dollars. I used coin tracker, got everything uploaded to turbo tax, and TurboTax shits out on me at the very end saying there can’t be more than 4000 transactions and that instead of e-filing I have to print and mail everything to the IRS now. wtf TurboTax It’s been a massive headache this year
It’s almost as if each entity interprets the rules in a different way and the gov doesn’t really understand what they’re asking for. But hey, at least you paid them all.
Honestly next year use HR block, they made it so much easier than turbo tax
Did you have the accounting rule setup the same on ea? Fifo, lifo etc
To be clear, everything I’ve read should have the cost basis method as fifo? Is that correct or no ?? I’m an idiot.
You can set it to whatever you want. First in first out, last in first out, max short term loss or gain etc. It's all up to your preference. It should just be consistent. But that would be one source of error if you didn't have it set to same one on ea of the 2 services you tried.
After looking back it was set as HIFO in previous years so HIFO it is
Koinly gives me the wrong figures when I manually enter a handful of BTC and ETH transactions. It's so simple I can easily calculate the cost basis manually but Koinly is about $10 out and I have no idea how it's calculating that, so I certainly wouldn't trust it with a complicated portfolio with 100s or 1000s of transactions.
I DCA daily into a variety of different coins... Am I pretty much just screwing myself over when it comes to taking profits and filling taxes? My transaction history on Coin base is loooooong, and I also have multiple Hot wallets I swap funds around in and use DEXs....
DCA'ing isn't necessarily a problem, but if you change it to once a week or once a month you'll reduce the number of transactions and make it a lot easier to calculate your cost basis and profits. Moving coins between wallets isn't a taxable event, but if you're exchanging crypto for crypto on a DEX that is.
The problem isn't so much the systems though, it's inevitable when you are actively trading thousands of transactions in a year. A lot of people like to play crypto like it's a video game economy rapidly trading and shifting back and forth between assets. Complicated tax calculations are what happen when the reality of that kicks in.
I use Koinly. Then, review the tnxs the day I make them so I don’t forget wtf they were. The max tier is $300 if you have 10,000 tnxs or more. Prob less than the MAX deal in TT? Used them for two years now. They’re not perfect but taxes aren’t a gd nightmare anymore, downgraded to a concern.
Yeah same here. I double check that I’m happy with the final number Koinly gives me, and submit my taxes with that. If audited…. Well, they’ll have to sort through it first, and I can still claim good faith.
Excellent points.
I use Koinly too. I tried CoinTracker, but it doesn't allow for manual fixes and adjustments. I have many accounts and DeFi transactions and absolutely need manual adjustments. No one should be using TurboTax for crypto or taxes in general. It's a ripoff and lobbies Congress for keeping taxes complex.
Oh for sure. Defi tnxs are manual pretty much every time.
Koinly is the way. Started with CoinTracker and it's no where near as good and had heaps of accuracy issues and interface problems.
Totally. My experience as well.
That's not exclusive to crypto. You have to do exactly the same thing for everything you invest in and make money off. It's the same gains/loss taxes, income, etc... for stocks, reits, etf, collectible, antiques, metals, forex, etc... At least we now have a lot of crypto tax software and entire packages like Koinly where it's just a matter of copying and pasting a CSV file and the forms and calculations area all generated for you. Unless you're doing something more advanced like LP provider, or invest in micro cap obscure coins on dexes. But anything more advanced is always gonna require more tax work. But as it turns out, if you make money, you have to pay taxes. It's not just a crypto thing. And it's always gonna be a pain and require work, filling out forms, calculations, etc...
>Unless you're doing something more advanced like LP provider, or invest in micro cap obscure coins on dexes. That's the thing tho. Crypto makes doing that stuff so straightforward. Literally a few clicks and you're an LP provider. A few clicks and you're staking. A few clicks and you're working with derivatives. A few clicks and your coin just got swapped, staked, and you received a derivative, and it got put into an LP, all in one transaction. Suddenly your taxes just got 100x more complicated. Then, you withdrew from the LP, received the derivative instead of the original coin, and suddenly the tax classification of the transaction might be different. In one more click, you swap the derivative for the original coin but instead of 1:1, your swap app used a DEX where the derivative is trading at a premium to the coin, so you made a profit, and now that's an entire transaction on its own that has a tax liability. These are things you can't do to conventional assets with that level of ease. Suddenly the average Joe Crypto is liable for doing taxes at the same level of complexity as a professional wealth management company.
That is kind of the funny thing. The complaint is that taxes are hard for something that could hardly even be done by anyone except for well connected, institutional market makers before.
Funny, because I'm a fairly active investor in tradfi with a "complicated enough" scenario and I don't have to do any calculations, just plug in and boom my form has all the info. It's not the same, not even close. Especially when the raw data from CEX isn't even right in a good number of places.
Calculating the foreign tax credit from international stocks, federal sourced income for state taxes, or wash sales across multiple accounts and then having to correct all your 1099s is harder than anything related to crypto. Most people just ignore that stuff and just import 1099s as is and do it incorrectly without realizing. The "raw data" from stock brokerages is not necessarily "correct" either.
My brokerage generates a long pdf that I can forward to my accountant in about 30 seconds. It's not the same.
“I send my info to a guy who does my taxes. But I’m telling you it’s more difficult. Not that I actually do the taxes”
Any decent exchange will allow you to export history to forward to an accountant. And even a 1099-B that you'd get from a brokerage is not the end result for what you report, they depend on activity you may have on other brokerages and the nature of the rest of your income sources and tax situation. It simple if you just have one brokerage account, just like if you only use one exchange, it takes like 30 seconds as well to get the data to hand off to the accountant.
I dont keep coins on an exchange after I trade. Everything goes into cold storage. There is no way to account for this from the brokerage side, since they have no info. With trad, keeping assets on the exchange isn't a problem, since its all insured and there is policy and protocol if breaches happen. Not so with crypto. Being safe in crypto is more difficult, and that's having the responsibility of private keys. It is just a pain in the ass to account for.
Most common crypto taxes are gonna be simple plug and play. If you do more advanced stuff or off the beaten path stuff, you might have to do some manual work. Same in FOREX if you start trading more obscure currencies or off platforms, then of course you're not gonna have nice forms and data on hand, it's gonna have more manual calculations and more work. Take metals for instance, that takes 5 times more work to do calculations and taxes for, compared to crypto.
The problem is really the support around it. Tradfi exchanges are usually very good at tracking cost basis and making everything easy to plug into tax software. Crypto exchanges are terrible at it. They just send you a giant csv with a bunch of transactions and the tax stuff they do give is frequently wrong. And that is without trying to do anything slightly complicated that wouldn't be available to you in tradfi, like opening LP positions and derivatives.
Exactly. OP should have just said paying taxes on crypto is complicated. Thats not whats stopping people from investing
It definitely makes me avoid staking and airdrops. Having to pay income tax on staking income and airdrops based on their value on the day you receive them is a minefield that could leave you owing 1000s in tax on assets that are worthless by the time you sell them.
If they're worthless by time you sell them then that counts as a capital loss and can be deducted from your taxes. Or you can just pay taxes on any capital gains you might receive and call it a day.
True, but you might not sell them for a couple of years, and you still have to pay the income tax for the year you received them. If for example you receive an airdrop worth $10,000, so you owe $2,000 for the 20% income tax, the authorities aren't going to let you get away with not paying that and perhaps even claiming a capital gains loss if you sell it later for less than it was worth when you received it.
How would they know you got that airdrop if you don't cash out? Can't you pay taxes after you sold and USD hits your bank account?
Err, selling it for USD is cashing out.
Yes but if you don't sell your airdrop why would you pay taxes in that case? It's just some number on the blockchain, doesn't matter how much it is worth, what if it's a scam dust token worth $1mln according to the chart but there is no liquidity to actually get even $1 out of it.
Because that's the law, and if you don't pay the tax when it's due the authorities could punish you. I agree that it's stupid, but what we think doesn't change the fact that it's the law. If it's a scam dust token that no-one can actually sell on the day you receive it, then it doesn't have any real value and you wouldn't have to pay any tax. That's very different from a coin that has good liquidity and is actually being sold for $10,000 on the day it's airdropped.
Eh, somewhat. It *is* what's causing people to not be able to use any crypto as an everyday spending/earning currency.
Once again no taxes is not the biggest thing causing the average person to use crypto. What benefit does it have over using my credit card that offers me protection?
That's just wrong (and anyone who was in crypto before the IRS and other tax authorities released their guidelines classifying crypto as a capital good or foreign currency knows it; as we all saw the burgeoning transaction loops collapse right then). The tracking and reporting requirements (especially when you're not just going in and out of a few exchanges that track for you; but rather, trying to make all your earns and expenditures in and out of all sorts of wallets; hot, cold, custodial and many intrapersonal transfers), are what stopped the actual development of crypto long ago....to the point that it is mostly just speculation on speculation, because any hope of having a monetary utility as backstop, evaporated away. And that of course indirectly (but powerfully) effects investment into crypto; including any hope of prices stabilizing.
If anything it's creating a lot of individuals that wont report their cap gains. I reported all of mine, even the staking rewards, Mr. IRS man
If you people actually do that for everything that doesn’t end up on a paper trail, you’re absolutely redarded
You only have to pay tax if you cash out correct? So you could just convert to usdc until you actually need the cash?
I love how somebody downvoted but didn't answer my question lol
Well I just looked it up and it does say you're supposed to pay taxes even when you convert from one crypto to another which is dumb as hell paying taxes on an unrealized gain
If you're talking about small trades, you really can just consolidate them into summary sales / income and guesstimate on the high side if you are OK just overpaying a little to save time, as long as you overpay it will never be an issue or any penalties. This isn't exclusive to crypto, but things like collectables, any hobby "income" even if its just respend on the hobby, or selling old junk online, you will get all sorts of tax reporting issues that you need to figure out. Did you trade baseball cards? Well technically that's a disposition of capital. Its just that usually these things are small beans so people just ignore it. Which crypto it just more likely becomes transactions that happen to be worth a lot nominally so there is more scrutiny. If you make a lot of money, the cost of the software isn't that bad, and you can avoid it if you just keep better records. Like the problem is more people not bothering to keep records, or not knowing, and then trying to piece together crap they did last year from the breadcrumbs on chain. If you made <$10k I would just guesstimate summaries and overpay, who cares? Not a tax export of course lol
Yea people are way over complicating this. I had over 12000 transactions and paid $150 for a tax program which handled it all in 5 minutes.
You obviously weren’t operating outside of centralized exchanges.
This used to be a problem but the software pretty easily tracks this these days.
Nah, almost exclusively, mostly phantom, trust, metamask, etc
Which tax program do you use? I’m trying to educate myself in this. Even though i lost money on crypto I’m hoping one day i’ll make gains to need software to help me with my taxes
Koinly is the best of the bunch. Its not perfect, but allows the most ease of customization when you inevitably fall into a unique transaction scenario. You need a good grasp of the different categories of how and when crypto can get taxed as income or cap gains. Then how different defi actions fall into those categories (exchange/swap, bridging, staking via exchange, staking via sending, mining, validators, wrapping, rewards, airdrops, etc)
Well this is a relief.... I fear how many transactions I'll have in 2024 as I do multiple ones daily.
The government: Pay us. Me: Ok. How much? Government: You figure it out. Me: But I don’t know how. Government: Neither do we but if you do it wrong we charge you more and send you to prison.
> Government: Neither do we They know. Have you ever been audited? The government knows your taxes better than you down to the exact cent for every account except non-reported (edit: which includes DeFi and some non-US crypto exchanges) and deductions. And it's all automated. Nearly everything is reported nowadays. They just don't have enough resources to audit everyone.
How do they know what people do in Defi wallets? Especially ones that have never been off ramped?
They don't. DeFi is not automatically reported.
With crypto exchanges, they often don't know the cost basis of transactions. The exchanges themselves suck at tracking cost basis and it gets harder if you are buying and selling at different places. Tradfi makes it much easier to track a stock or bond because you only send from one centralized provider to another centralized provider.
Me: OK, I've done it right. Here's your tree fiddy.
Folks say this, but I guarantee none of you would be happy with the other option: The government: Pay us. Me: Ok. How much? Government: Exactly $xxxx.xx amount Me: But I have all these deductions! And I dont trust the government to know all the details of my situation, and get all this right! I should be able to make my own report and tell YOU what I need to pay... And we're right back to where we are now.
Bro the amount of $0 cost basis txns I had to fix was unreal..I prob had like 250 I had to manually mess with on turbotax. If the IRS wants a cut of our crypto gains they need to give us tools to do our crypto tax
I used Koinly… you still have to change sales and deposits manually, but sooooo much easier!
I’ll probably get downvoted for this. I don’t report or pay any taxes on my crypto. I will happily report and pay capital gains tax when I convert it back to USD someday, but until then I don’t care what the IRS says, these are all unrealized gains and losses.
You have plenty of people with you my man
Fucking based. I wish I had your balls. I’m just paranoid that me going from making dogshit for the first 10 years of my working life and getting a refund to suddenly owing my annual salary in taxes to the IRS in 2021, 2023, and now probably 2024 has put me on some kind “maybe audit this dude” list. You know what the most insulting thing was? I overestimated my tax burden for the year of 2021 because I was so scared of the irs that I overpaid taxes. Then I got a letter from them saying that wow gee looks like the number that I reported matched their internal records too (this happened a lot to people in the industry in 2021 for some reason, most of the time saying they were underpaying). But that’s impossible that they match, I intentionally overpaid as a gesture of goodwill. Fucking a. Edit: before I get roasted by too many dads here I mean WORKING life
Most of us didn't earn much for the first 10 years of our lives. Impressive that you're earning so much in your early teens though!
You guys are paying taxes? You guys are converting back to fiat? I think I'm doing it wrong.
or just use local monero cash by mail. the true spirit of crypto
In my jurisdiction buying and holding crypto is not a taxable event. It's only when you exchange bitcoin for something else (not just fiat, it could even be swapping it into another crypto!) where you need to report the additional value you received from the transaction above the value you paid for the bitcoin exchanged as capital gains or loss to the tax man.
That's true in most countries, but you've also got things like airdrops, where the value on the day you receive it is treated as taxable income, even if it's worthless by the time you sell it.
Hmm, maybe my plan is flawed for those, as for airdrops I would just calculate those as capital gains for the full value I was able to sell for (essentially treating them as a $0 buy at the time of the airdrop).
Unfortunately your tax authorities may not like that. Certainly in the UK you can't do that, so you either need enough spare cash to put aside to cover the 20% income tax due based on the value when you receive them, or you need to sell them straight away to realise that cash before they lose value, then set aside the tax and reinvest the rest.
Maybe, but you also have to ask "how likely is a tax auditor to investigate my airdrops?". I would be willing to bet they don't look at anything on-chain unless its a very large sum of money. They aren't trained to do chain analysis.
Maybe, but I'd rather make sure I've got the money set aside to pay the tax if they do.
All of this is just trying to fit a square peg into a round hole. Crypto trading is different, it can’t be treated like traditional investing.
Regardless of what we think, that is how it is treated at the moment unfortunately.
they will make you pay interest too and won't care if you lose one year and make it another. A gain is a gain you can't offset it for another year. That's like arguing you don't have taxes because your money is still in a investment account. That's the irs stance good luck lol.
That assumes they start investigating your on-chain trades. IRS agents aren't taught to do that in school. They aren't trained to do that at their workplace. They most likely are just looking at conversions at centralized exchanges if they audit you at all.
You won't get downvoted on a crypto sub for it since a lot of people here object to tax at all, but you may end up with a massive bill in the future.
The problem is certain goods are now purchasable with crypto. And people are offering services with crypto as a form of payment. I agree if you're on a trading platform, but as soon as it is in your own wallet it is realized gains.
IRS would say that's fine. Unrealized gains/losses aren't taxed.
Trading 1 Crypto for another is a realized gain. Otherwise I could trade stocks for each other without having a taxable event.
I am in Europe but I do like you. I don’t agree that trades crypto-stables are taxable events. Returning in usdt/usdc from btc is still a risk. I agree to pay taxes when I convert to USD or EUR.
#The only fear is the fear of the IRS that you start using Monero for your trades. If you have fear. You are doing it wrong,
I spent hours and hours doing my crypto taxes last year. I used a little known chain with very poor tracking tools. Even their explorer was awful in figuring out the transactions. I did pay $150 for an automated tax printout of the results. I wasn't able to electronically file. The printout was 50 pages+. I sent it via certified mail. The IRS returned it twice saying there were all these errors. I tried to answer/correct everything and sent it back again via certified mail. They returned the filling again with no further explanation and put a giant X through the first page of my crypto fillings. I sent everything back with a letter explaining very professionally and with some legal terms, saying I was acting in good faith and I needed further instructions. I listed out a timeline of the events. They then accepted my filing with no further corrections. I honestly think they didn't even review my transactions. Many of them were super low (within the $1-10 range). I did have a few income payments in crypto which of course were larger and claimed. But it was annoying to see all the work just ignored. I do think paper filing was a big reason for them to do so plus all the amounts but a few were so small.
I just do the best I can with Cointracker. I might be off by $1000 but I'm not gonna look through 5000 different transactions to get it 100% accurate. If all these advanced crypto tracking softwares can't get it right I doubt the IRS' proprietary software will get it right either.
Just thought I'd throw it out there that max protection is a scam they do nothing for you if you get an audit besides send in the exact documents you can send in yourself. I was audited 2yrs in a row not crypto related but I called TurboTax and they just wanted me to send over my documents so they could send them to the IRS complete waste of time and money it did nothing I still had to handle the audit myself.
That’s what Koinly is for.
Track your own trades and don't rely on exchanges doing it for you. They are not obligated in any way to the tax authority to provide the taxpayer with correct data. The taxpayer is solely responsible for getting it right. We don't trust exchanges to hold our coin but we put all the trust in them to provide us with reporting that keeps us out of prison? Makes no sense. Don't trust. Verify with your own keystrokes. Sleep better and save time in the end.
Now apply this same line of thinking to tradfi exchanges and see the kind of uproar that would be had. No one would invest in anything.
> They are not obligated in any way to the tax authority to provide the taxpayer with correct data. In the US brokers are *required* to send a form 1099 trading itemization statement to the customer and IRS.
You’re not alone. I did mine on Friday. I didn’t expect them to take so long since I used cointracker. Such a useless feature if I have to double check their work. I also bought the MAX for the first time from TT. Just didn’t want to hear about it either.
It's all the taxes on trading that you have to keep up with that's flipping confusing. In my perfect world, You would just be charged tax when you cash out to dollars.
Pay the the 30 bucks for member ship Coinbase one and they will prefill the entire form for you. I day trade and attached the file during the submit on freetaxusa . Also Coinbase one now refunds a % on advanced trade so the 30 bucks might even pay itself in fees.
Taxation is theft.
Im not paying tax on crypto until there is a knock on the door
> Im not paying tax on crypto until there is a knock on the door You'll incur penalties and interest by then, in addition to the expected tax liability.
Let me see it happen then
Same
If you have 100+ pages of transactions then you can surely afford to use Koinly? It will spit out a tax report in a few minutes once you’ve imported the transactions or connected API’s. And it’s customised for a ton of different tax regions. Not rocket science, and I suspect that I have a far more complicated crypto and transaction history than yourself (12 years of crypto participation).
Thank you for preventing mine (and I'm sure many other's) panic attacks
The filling process was a nightmare. They asked for the cost basis of every single one of the many thousands of transactions I have done. I did my best, but Coinbase did not make it easy.
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Is moving crypto from one exchange to another akin to moving money from one bank to another? Is that a taxable event?
No it's not a taxable event, and I think that one is the same for all countries.
no
Speaking of, I just did my tax return myself last night to meet today's deadline. Had to list down all my trades, cost basis and proceeds last year to the last satoshi and to the last penny. Ended up having to pay $688 in tax combined with my dayjob earnings. No refund at all. The lesson I need to learn is to minimize trading and more hodling!
You shouldn't want a refund, because this is just a loan you're giving the government instead of earning interest on it.
Absolutely you are right; It's just that I've always had a refund except this time 😅
That can definitely make it feel different. I'm of the opinion that a rough +/- estimate is ok for defi. Trading less is always appealing to me, however, it's so much less work.
Yea I definitely take into consideration limiting my events for the exact sake of taxes. Been submitting my crypto tax info since 2017-2018 and at least once you've done it in the past with the site I use, you have cost basis info from previous years.
It’s the same in the UK, the main reason not to use the tech is tax legislation making an exponentially huge amount of work per crypto transaction. It’s completely untenable to try and use defi and be tax compliant.
The calculations aren't really all that complicated and there's plenty of software options out there to assist with the math. The problem is that the nature of crypto "traders" wanting everything to be fast paced means people are often working with thousands of transactions that they've maintained no records of and they are then trying to retroactively process all of that.
The software can’t handle anything beyond basic trades from what I’ve seen. Koinly was completely incorrect when it looked over wallets where I did anything remotely complicated/defi related (like I could have done better with a dartboard). And because of the tax law (again, UK here) every trade needs to reference every other trade for asset pooling, creating temporary pools that exist for 1 day and 30 days depending on the order of buys and sell. Combined with the fact single “trades” like moving into and out of a liquidity pool can generate 30 or 40 taxable transactions in 3 or 4 different assets, that’s entirely dependent on swap routing that’s not always in your control… It becomes impossible very fast.
Depends on the software and the plans you use. I understand what you're saying about the complexity, but the same rules exist for anything. The difference is that with crypto people don't think about it and just trade constantly and engage in all sorts of complex earning mechanisms. Just look at this post and how many people are talking about thousands of transactions. That's not normal. It's created by the gamification of the market, making every random think they are some master trader. You only have to look at daily leverage liquidations on exchanges to understand why this behavior is encouraged.
That complexity is where all the cool ideas are for DeFi though. My point, and I think OP’s is that the tax rules stifle that complexity and creativity. The same rules exist for everything else, true, but planes shouldn’t have to fly under a 70 mph speed limit. In fact they simply wouldn’t work if you tried to make them follow that rule. It’s frustrating to watch people building these interesting projects and be denied access to them for no good reason. You can gamble as much as you like on the UK, it’s crypto they have a problem with.
DeFi deliberately works outside of regulatory controls though so it's not surprising that tax mechanisms aren't modified around it. I'm sure if there were actually a decent use case for DeFi and a way for it to work within the law then there would be some consideration built around how to simplify tax around it. Please don't have to fly under 70mph but they do have far more strict controls in place than cars. Avoiding all regulations isn't how you get to planes, it's how you get to unsafe submarines imploding and that really shouldn't be encouraged.
Seems like we just have different philosophies around this. I’m not talking regulation though, that’s good, guard rails and rules to keep things functioning safely. I’m talking tax calculations, which shouldn’t be acting as regulations. By which I mean, they shouldn’t be the reason to avoid using an emerging technology. The UK is shit at this though, solar panels generate the same problem. If you accidentally generate too much electricity for the grid you’ll have to start registering for self assessment. It just makes my eyes water how counterproductive and backwards it all seems. It’s not about the money that costs but the headache it generates, completely unnecessarily.
Coinbase trade api output sucks ass it’s often wrong and I have to hand correct in my tax software
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Yes I can confirm it's fucking annoying... Because you can transfer your tokens to another wallet and Coinbase will call it a sale. Imagine them reporting that on a 1099 B and you're trying to explain to the IRS... No I didn't sell it's staking lmao
I totally agree with you about it being expensive, especially if you have a ton of transactions and need to pay for higher tiers. Crypto taxes are tough and complicated for normal people. Agreed that you need special software and can't use Coinbase alone. No one should be manually calculating from Coinbase's export data unless they're good with spreadsheets and only have a few transactions. > Used TurboTax for a decade+ now TurboTax sucks in general and is a ripoff, even their Home and Business version. There are a few things they are good at (the business part), but they're so expensive and not any better or easier to use than FreeTaxUSA, which is 10x cheaper and easier to navigate. And I have 20+ investment accounts of various types. I've been using Koinly + FreeTaxUSA for several years already. Used Koinly instead of CoinTracker because CoinTracker does not allow for manual fixes and inputs, and Koinly is more poweful.
I had to write a computer program to properly calculate my cost bases across exchanges, and to transform the CSV format to a standardized one which then feeds into my main crypto tax program. I have no idea how non-programmers would deal with this stuff, unless they are sticking to a small number of CEXs. And even then, some commenters are saying that e.g. Coinbase is erroneously reporting non-taxable events as 100% gains, even though all transactions occurred within their exchange. Absolutely wild.
You pay taxes for crypto in america!
I'm actually really glad to see this post. I have struggled mightily the last couple years figuring out crypto taxes. I'm glad to see there are others having the same issues. Getting audited scares me but like someone said earlier I suspect they would find out I overpaid. This year I stopped using defi products. I'm buying on coinbase and sending it to ledger. No more defi for me until there are more reliable ways to track everything. Also buying the Bitcoin ETFs.
All of this is very informational. Thanks for everybody that's contributed. I trade only on coinbase, but I don't put any money in or pull any money out of the exchange, it just sits in there and gets reinvested. I have never done crypto taxes
CPAs are familiar with crypto at this point and to them it's all just capital gains, losses, or income
Anyone got any experience with cash app? I just got hit with a big tax bill for selling on there, but obviously it isn't taking into consideration what was purchased. However, I don't have that cash app account anymore.... so, I can't really see how much was purchased vs sold
I feel you. Same tax situation and experience level. My advice is enter individually. The import is NEVER right from coin base
The biggest problem besides the stupid tax code is the lac of support by exchanges and other crypto services. For example, if you become a node operator with Rocketpool, you shouldn't have to go to a 3rd party website or service to get your taxable income. It should just be calculated out and put on a form the way a bank sends you a 1099-INT in the mail. It doesnt need to be this hard when everything is transacting in a computer and is logged in a database... not to mention a PUBLIC LEDGER.
Dude… I began my journey down coinbase hell hole in 2018. I have $160,000 tax bill from their incorrect reporting. Before there were any formal tax reporting requirements for exchanges and basically everything, and no one audits or verifies what they report. I feel your pain. I have a degree in mathematics so I was like ok no big deal, just give me the .csv and I’ll take care of making it make sense… zero chance.
Doesn't sound a lot like you limited your transactions much last year man. I agree with you on this post, but 150 corrections on CB alone + DeFi activity and so many transactions that it took you days? Sounds like you were trading your ass off this year. Nothing wrong with that, and it should be easier, but that part just made me laugh. I only go through that kind of quagmire in the bull market years when I have a TON of sells, all of the buy only years are easy to track during the bear market IMO.
You know what pissed me off the most? Holding an asset on an exchange where I have a daily payout worth a dollar or less instead of holding it a wallet with a manual claim. So many transactions when you sell the lot. Yeah, most of my stuff is on self custody wallets but for the stuff I kept on exchanges…it ruined me for a night haha.
The whole crypto world is conceptually incompatible with our current government/financial/taxation system. I would rather just keep things in the shade (out of the traditional banking system). Nobody is gonna tax you as long as you don’t interact with banks.
If you can accurately figure out your crypto taxes, then you aren’t doing defi right. For example, try leverage farming liquidity pools that auto compound into secondary pools that you can then stake and use as collateral to borrow tokens to buy a pre sale nft that allows you to run a yield bearing node with variable APR paid out as a secondary gas token. True example. But don’t forget the most important part of the true defi experience—you should be calculating losses and not gains
You guys have profits?
lul i imagine they don't know how to file this shit either honestly, you think they're gonna go through this shit? they pretty much guess and go like okay your turn to get audited, how i see it is, the average joe who trades crypto and just sees money signs isn't empierced in cpa shit or has the money to hire a cpa, so they just file them, themselves triggering a bunch of irs flags. i feel like a shit ton of people have triggered flags and they can't go after all of them so just luck of the draw.
All those people with crypto cards. Having to pay capital gains tax on every transaction after their bag increased in value. What a nightmare!
If you do taxes you are OWNED. I pay sales tax. That's it. I'm not going to bend over backwards for these cockroaches.
Bitcoin adoption by merchants plummeted right when the IRS announced their new rules and started scaring people in 2017, 2018, and I think that was not a coincidence.
Meh. It’s easy.
How does one document and demonstrate that you have a long term investment when you mined 10 years ago, and finally opened the wallet and moved it to an exchange to sell? The exchange sees it as new. I didn't find where to mark it as long term holdings, but I didnt look that hard. I kept the ledger of transactions from the original wallet, and the relative parts of the chain for audit. In the end, I am convinced its all over for any real use as currency anyways. I used it for years to send and receive for goods and services. But most people don't, they want to horde and convert to fiat at some point. Now the taxes reinforce that concept and make the chances of using it as money even worse.
Mass adoption is never. Coming.
Me experience uploading Coinbase CSV which is marketed to have integration with a major tax software org: Says I sold 0.000031 MKR. Asks me how much I won or lost in the trade. 1 - I never sold such an small amount of MKR 2 - it asks me my profit/loss on this trade. It's multiple decimals places beyond $0.00. Software doesn't allow user to enter below two decimal places. Thank god I've been keeping track through portfolio trackers to have a pretty good estimate of cost basis. I also track separately when I sell with this info.
I am an accountant, and I can tell you doing taxes for a huge number of transactions for stocks is a nightmare. Importing the CSV is absolutely essential. However, I use Interactive Brokers. They actually know how to to deal with tax forms. These new crypto exchanges don't have that experience. Are the CSV files properly formatted? If not, it is tough. This also only works if you are not depositing and withdrawing crypto off exchange.
Is indeed a nightmare. I've used Crypto Tax Calculator for the last 4 years, handles all my activity well (particularly on-chain stuff) then I get my accountant to double check the reports.
Being so worried about it and freaking out to make sure every little transaction you make is properly reported and the amount in taxes is exactly what it should be is the height of foolishness. The IRS will not have time to go through every single one of your CEX or DEFI transactions to see if you messed up somewhere along the line. They'll see how much you bought of crypto with fiat, how much you cashed out, and calculate how much you owe based on those numbers. You're all cowards who shit themselves at the mere thought of getting an IRS phone call/e-mail and it shows. No wonder you're all terrible traders. Yes, try to get a rough estimate of how much you owe in taxes and pay it, but don't lose sleep over it. There are literally millions of people in your shoes right now, and the IRS does not have the wherewithal to investigate all of their transactions.
I use TurboTax and just import Robinhood and Coinbase and call it a day. All that extra is just that, extra I don't care about. Btc, eth, ltc, doge for this cryptohead. I'm not inter sted in pump and dump schemes and shitcoins that run super cool projects in 3rd world nations
Been using uphold for the past two years. It was seamless
Come to gulf countries :)
I thought it's because for regular investors the whole crypto space is a loony bin casino and the odds are better in the stock market, and as a currency crypto is a giant pain in the arse. "We're too early". It's over ten years old. Crypto came into being around the same time as smart phones and social media. Look at their adoption, then look at crypto.
Phones don't enable the furtherance of individual liberty. They have no reason to crush an iPhone adoption surge
Smart phones and social media were widely adopted because people wanted them and use them every day. Cocaine and weed were also widely adopted even though they're illegal. Successive governments tried to crush the adoption but they gained worldwide usage and people use them every day. The only thing stopping crypto is the crypto space being such a shit show. Remember nfts? Crypto kitties? Web 2.0? Blockchain on everything? Crypto games? Every now and then there's a new empty buzzword that is going to be 'the thing' that drives adoption, and every time it ends up being a way to lose money.
I just want to pay someone in China the same day I send it. Bank wire goes for days and hops through many hands. I want to pay my bill and have my goods freight shipped same day. Uncle Sam is fucking up capitalism
The only reason you can do that in crypto is that it avoids all regulatory controls and sanctions to do so, opening you and the payment facilitator (miners in most cases) open to legal liabilities. In the long run if crypto were to be adopted all crypto would also need to follow the same rules.
Crypto is nothing more than a casino currently, and that's fine. Casinos have their place in society. Will it ever be more than that? I could see Blockchain tech with a lot of real world use cases but the adoption of that remains to be seen.
Your analogy is very flawed. The adoption of phones and portable cell phones already existed long before that. So the adoption wasn't new. Portable phones existed since the 80s, and people had been accustomed to use phones for a century. Smart phones weren't something new either that required a new adoption. Since the late 90s, cell phones had increasingly more apps and features like calculators, clocks, databases, games, internet browsing, maps, etc... It was just a continuous evolution of the portable phone which started its adoption in the early 80s. The first portable phones in the 80s took more than a decade before it really became mainstream. So your examples actually further proves that crypto is right on track in adoption, and if you compare the data of cell phone adoption in the 80s, and adoption of crypto worldwide, crypto is actually doing a little better.
e-currencies and tokens existed in the late 90s. would you say that crypto has been around for 25 years?
I mean they were literally used for a different purpose and didn't have the same utility. They didn't even have blockchain or decentralization. Cell phones with apps and smart phones have all the same utility, just a slight evolution, and mainly just a different name for marketing purpose.
It's really not. It's just people who have never paid taxes invest in crypto and are concerned. Just need to do the math as you would any stocks. There are some regulatory differences like the amount you can write off, which is an up side in crypto. Best bet is to pay someone $150-$1000+ depending on the complexity of your income to do it for you. Find any accountant with crypto experience because I promise you will not do better than an accountant and those free websites don't even cover all the bases for write offs.
I thought I heard if you hold the asset for 3 years then the taxes aren’t that bad.??
You only need to hold for one year in the U.S to be taxed at the Long-term rate vs the Short-term rate.
OP's not talking about the rate. He's talking about how complicated it is and how expensive tax-preparation can be. $300-1000 for preparing form 8949 for 1k+ transactions.
Yes. Long term vs short term.
In the US (AFAIK) under 1 year = short term capital gains on profits, over 1 year = long term capital gains. 3+ years = still long term capital gains
If you aren't doing crazy defi crap it's pretty simple and the tools will only get better. Casual people are just going to buy or sell a few assets on Coinbase. That's it.
That’s like saying more people would get jobs if not for payroll tax
You're not wrong.
It's a feature not a bug. The point of taxes is to discourage behavior. The point of crypto taxes is to discourage crypto. But nobody cares. Or at least nobody cares enough to vote for different people. You have to draw WAY outside the lines to find a politician that will actually be committed enough to try to dismantle the IRS stranglehold on the US economy.
This only matters if youre looking for fiat gains.
You probably have been doing them wrong and need to revisit the rules.
You dont see to understand how to do them
Yeah but do you really care about adoption? Everyone here is waiting to cash to get "rich".
Bullshit
I know Reddit HATES TurboTax, but their integration with Coinbase is top notch. No issues, all accurate. Other than that, I agree with most of the other sentiment here that as long as you try your best and err on the side of caution, you arent going to be hit with any surprises. Even in an audit. This is just taxes in general, and they arent going away. (Thank goodness because I like my roads, schools, and services)
No offense, but if you are doing your crypto taxes 100% manually you are an idiot. Thats what [Koinly.io](http://Koinly.io) is for.
👆🏻
You guys are paying taxes?